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- Orvana Minerals reported a loss of $25.9 on more efficient operations but with a large--$25.5 million impairment charge.
- More importantly the company reduced its resource base for its flagship EVBC Project and shortened its estimated life.
- I got this one wrong last week seeing that I didn't predict the resource decline.
- At this point I would cut my losses.
- Orvana Minerals shares are down 25% in the 4 months since I recommended it as Q2 production figures at the company's flagship El Valle Boinas Carles were horrendous.
- Management has made necessary repairs to EVBC while emphasizing higher grade ore in order to maximize near-term efficiency--production is down but ore grades are up substantially.
- The trade-off will generate a significant increase in cash-flow leaving the shares significantly undervalued.
- Orvana Minerals is one of the few gold miners to generate strong profits in 2013.
- Since one of its mines--Don Mario--is in Bolivia investors seem to be reluctant to invest.
- But this mine is a secondary asset compared with the company's EVBC mine, and the disparity between the actual risk and the perceived risk has created an opportunity.
- The stock is undervalued on a DCF basis even if we aggressively discount the cash flow from Don Mario.
- Further, the stock has tremendous upside if the gold price rises, or if the EVBC mine's life can be extended.